DECISION MAKING ON THE BASIS OF EXPECTED COST VARIANCE: A FUZZY SET APPROACH

Abstract

In this paper we discuss a mechanism for making business decisions on the basis of an expected penalty function associated with cost variance. We assume that the decision maker is knowledgeable of the economic environment in which the decision will be made, but that he has no hard data” such as a market research report. In this setting fuzzy logic is more applicable than ordinary statistical decision theory. We develop a method of computing a fuzzy expected penalty based on a fuzzy distribution of cost variance and a fuzzy penalty function. These fuzzy expected penalties are then defuzzified” so that a non‐fuzzy decision can be made.

Citation

Kleyle, R., de Korvin, A. and McLaughlin, T. (1996), "DECISION MAKING ON THE BASIS OF EXPECTED COST VARIANCE: A FUZZY SET APPROACH", Managerial Finance, Vol. 22 No. 11, pp. 18-29. https://doi.org/10.1108/eb018589